Competition and Regulation in the Telecommunications Industry in ...

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Competition and Regulation in Telecommunicationsrelative density of subscribers. Wireless is cheaper at lower densities due to the lowfixed costs, while fixed line is cheaper at higher densities. The cross-over point isestimated to be in the range of 200-800 subscribers per km 2 from US and UK studies(Cave 1995). This makes mobile more expensive in urban and metropolitan areaswith high subscriber rates. However, in many developing countries with lowtelephony density of use, cellular is proving to be a good substitute for fixed line(South Africa may well be a case in point). Rapid technological developments inmobile communications could make it even more substitutable.Mobile telecommunications also includes satellite personal communications services.Satellite makes use of more powerful devices to transmit to one of a number of earthstations, which in turn link to each other via one or more satellites. The greaterdistances the receiving equipment must transmit over, means they are larger andmore expensive than cellular. However, the use of satellites enables the network tominimise the number of earth-based transmission stations. This will not be discussedbecause a) the first global start-ups have all failed, and b) the cost is so much higherthan fixed line or mobile that it cannot be considered remotely in the same market.Other wireless communications also include the broadcasting group (radio, free-to-airTV and Pay TV) which are one-to-many operations without two-way capacity and socannot offer telecommunications.Finally, one can include two-way radio and radio trunking. Two-way radio is oftentransmitted over very short distances and includes networks for emergency servicesand communication within a defined corporate space. Often the distances are shortenough that no transmission stations are required, and the hand-held devices aresufficient. The longer distances are covered by radio trunking, which operate in afashion similar to cellular networks. Neither are suitable for public local accesstelecommunications and so will not be discussed further.Long Distance (National and International)Local access networks connect to a long distance network through a point-ofpresence(PoP). The long-distance network is made up of these PoP exchanges anda transmission network. Given that these networks draw on a large pool of localaccess subscribers, they are able to get greater density of use in their transmissionnetworks. As a result, most long distance networks use fibre optic when using a fixedline solution. Alternative transmission mechanisms include satellite and microwave(national only). Despite the choice of technologies available, a single market isdefined as one for national long-distance and for international long distance. Inaddition, as most of these networks have sufficient network speed for broadcastquality, there is no real need to differentiate at the infrastructure stage between voice,data and video.As with local access, there are economies of scope in rolling out fibre optic longdistancenetworks. A substantial proportion of the costs are in paying royalties tolandowners to pass the transmission cable through and putting in place infrastructureto carry the transmission medium (Cave 1995). If a new entrant already has anational infrastructure (e.g. railways, electricity grid), then some of these costs will bespared allowing a faster and cheaper rollout.8
Competition and Regulation in Telecommunications1.1.2 Provision of ServicesThe network infrastructure is the basis on which services are provided. Theincreasing intelligence of telecommunications networks has permitted a proliferationof services that are feasible beyond the basic local, national and internationaltelephony. The new telephony-related services include automatic callback,number/name identification, selective call rejection/acceptance, voice messaging,selective routing of calls, text messaging, fax, calling card, etc. In addition, the rangeof data/video services has proliferated with the most common including a full Internetoffering (email, world-wide-web), EDI (electronic data interchange), paging, manageddata network services, video-conferencing, database access and transactions, videoon-demand.Service provision can be split into two basic components – value-added networkservices (VANS) and basic voice. From this point there can be further separation intowireless vs fixed line, local/long distance/international, and business/residential.VANS are described as including electronic data interchange, electronic mail,protocol conversion, database access, managed data network services, voice mail,store and forward fax, video conferencing, telecommunications related to publishingand advertising services and electronic information services, including Internetservice provision.The provision of services occurs on top of the network infrastructure. Historically thenetwork provider was also the provider of services. However, unbundling the servicefrom the network is feasible and has been the path of most deregulation processes.A service provider who does not own the network offers the service by either leasingpart of the network from the network provider and enhancing this with one or moreservice components, or interconnecting their own network to others in order toprovide the service. The service component is added for essentially two reasons – a)because the network provider does not offer the service (by regulation or choice), orb) the network provider is seen to be inefficient at that service and the serviceprovider is able to offer it at lower cost or better quality.In terms of efficiency arguments, a number of possibilities emerge. It could be that anetwork provider is using dated or inefficient technology at points in the networkwhich a service provider may choose to replicate and then lease or interconnect toother parts of the network to compete. This may be as simple as the credit and billingcomponent, or internet access via the local telephone network but using a nationaldata network. Alternatively, the large network provider may not be able to adequatelyprice discriminate amongst all niches in the market and a service provider may leaseexcess capacity in the network for the purpose of niche resale. This is often the casewith international or national telephony services providers. The internet providesanother example of niche servicing – an important component of what customersseek in service providers is member services such as home page news, links andcommunity information. These can be tailored to niche markets while the cost can bekept the same by leasing lines.The additional components that service providers bring to the network are:• Service-specific infrastructure – this includes additions to the networkinfrastructure required to technically provide a particular advanced service. Forexample, in Internet services these would include a national points of presence(PoPs) network linking to the long-distance data network (Internet backbone),9
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